Oil prices fell on Tuesday as a rebound in Libyan crude production combined with an increase in U.S. drilling to signal the potential for increased supply. Benchmark Brent crude oil was down 20 cents at $52.92 a barrel by 0835 GMT. U.S. light crude oil was 20 cents lower at $50.04 a barrel. Both benchmarks recovered from four-month lows last week on expectations that the Organization of the Petroleum Exporting Countries would manage to tighten supply by cutting production under a deal agreed at the end of last year.
But global inventories remain stubbornly high and many investors are betting that it will take many months for oil prices to respond convincingly to lower OPEC output. “Libya’s gain means oil market pain,” said Tamas Varga, senior analyst at London brokerage PVM Oil Associates. “Along with figures showing U.S. drillers added rigs for an 11th week in a row, the pullback in oil prices was spearheaded by a rebound in Libyan oil production.”
Libya’s crude output increased after state-owned National Oil Corp (NOC) lifted a force majeure on loadings of Sharara oil from the Zawiya terminal in the west of the country, sources familiar with the matter told Reuters. US drillers last week added rigs for an 11th week in a row, data from energy services company Baker Hughes showed on Friday, extending a 10-month drilling recovery.
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US light crude may drop to $49.62 a barrel as it failed to break resistance at $50.95, said Reuters commodities markets technical analyst Wang Tao. Brent crude may retrace back to $52.79 per barrel, he said. UBS analyst Giovanni Staunovo said OPEC was taking longer than expected to tighten the oil market but recent data suggested the process was under way in earnest.
“We believe the implemented production cuts will trigger a material drawdown in OECD oil inventories and thus higher crude oil prices,” Staunovo said. “We expect Brent oil prices to rise above $60 a barrel in three months.”